Insurers should prepare themselves for a ‘digital earthquake’

Insurers, especially those that write a lot of cyber business, should brace themselves for an inevitable “digital earthquake”, which could involve cloud service providers becoming unavailable, a provider of parametric cloud downtime insurance backed by Tokio Marine Kiln and Hannover Re has warned.

Ori Cohen (pictured) is the co-founder and chief operating officer of Parametrix Solutions, a Tel Aviv-based managing general agent (MGA). Its policies cover financial losses for businesses when outages of the cloud or e-commerce platforms occur.

“We advise paying constant attention to cloud exposures, and to consider accumulation management and diversification. They need to be prepared for a digital earthquake, with the right information, management approach, and tools,” she said.

“Our advice to brokers is to get a cloud infrastructure assessment for all your clients. For those that rely heavily on the cloud, cover is a must upon the next renewal.”

Cohen stresses that it is not a case of one size fits all, however. “Different cloud infrastructures have different risks. For example, there is great variance between the availability of the different cloud service providers, and even further between the different data centres within each cloud service provider.

“For each client we conduct a brief risk assessment based on their cloud infrastructure. That provides the basis for their rating, and is shared with the client even if they don’t purchase the insurance in the end.”

She argues that Parametrix Solutions is more than an MGA: it is also a technology company and the developer of new insurance products. “As such, we take responsibility for the risk management of exposures assumed under our products. We have direct relationships with our re/insurance partners, and continuously monitor and report the risk metrics of our rapidly growing book of business back to them. That makes a better business partner for our capacity providers.”

She is keen to distinguish what the company does from the cyber space. “We are the only insurer, at present at least, in the digital supply chain risk space, which is completely distinct from cyber,” she said.

“Although we’re often lumped together, the risk factors are completely different, and should be managed separately, with different pricing and risk management. The cyber market has seen some dramatic changes, but we manage rates, exposures, and capacity completely differently.

“In practice, our product behaves much more like dependent business interruption than cyber, but our market conditions are not linked to that either.”

Because of this unique nature of the risk, Cohen accepts that the company’s greatest challenge is getting the word out that a solution like this exists. “At present our biggest challenge is getting brokers to add cloud downtime cover to the suite of products they offer actively to their clients.

“Catastrophic cloud downtime is a known risk faced by many companies, and our parametric insurance products cover all the associated potential losses, but our challenge is to inform brokers that we have a new product that their customers should be considering. Once they do, it pretty much sells itself,” she said.

Its target market is medium- to large-sized enterprises with a strong digital presence that rely on digital services to run their business. Any company with an absolute dependence on their cloud providers should consider this risk, she says, regardless of their location or sector. “We’re seeing demand across the board.”